R. K. WINES,PEN V. ITO, WARD 4, PANVEL, PANVEL

ITA 301/PUN/2025

AI Insights

The case involves R.K. Wines, a partnership firm engaged in the retail trading of liquor, which appealed against the decision of the Commissioner of Income Tax (Appeals) that upheld the rejection of its audited books of accounts and the subsequent estimation of net profit at 4% of turnover for the assessment year 2022-23. The Assessing Officer had rejected the books under section 145(3) of the Income Tax Act, 1961, citing non-verification of expenses and lack of response from some creditors to notices issued under section 133(6). The Tribunal found that while the books were not maintained properly, a partial relief in the form of a reduction in the estimated profit was justified based on the net profit ratios of previous years and the nature of the business.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 397112 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2022-2023
• Other Referred Cases: CIT-vs-Jas Jack Elegance Exports, 324 ITR 95 (Delhi) (2010), Praveen Kumar Voni-vs-ITO, ITA No. 112/Hyd/2017
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINOD PAWAR
• Assessee Lawyers: SUBODH RATNAPARKHI
• Keywords: Business income; Depreciation; Rejection of books of accounts; Bogus purchase; FORM 26AS; Bogus
• Section: 143(3); 133(6)

Judgement Text

" आयकर अपीलीय अिधकरण ”बी” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “B” :: PUNE BEFORE DR.DIPAK P. RIPOTE, ACCOUNTANT MEMBER AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.301/PUN/2025 िनधाᭅरण वषᭅ / Assessment Year: 2022-23 R.K.Wines, At & Post Pen, M.G.Road, Tal-Pen, Dist-Raigad, Maharashtra – 402107. V s. The Income Tax Officer, Ward-4, Panvel. PAN: AABFR4541C Appellant/ Assessee Respondent / Revenue Assessee by Shri Subodh Ratnaparkhi CA – AR Revenue by Shri Vinod Pawar – Addl.CIT(DR) Date of hearing 08/05/2025 Date of pronouncement 29/05/2025 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This is an appeal filed by the Assessee against the order of ld.Commssioner of Income Tax(Appeal)[NFAC] passed under section 250 of the Act, dated19.12.2024 for the A.Y.2022-23. The Assessee has raised the following grounds of appeal : “1. The Hon CIT (A) erred in upholding the action of the Id AO in rejecting the books of accounts by resorting to the provisions of section 145(3) of the LT Act, 1961, not appreciating that the books of accounts and supporting documents were properly maintained and duly audited ITA No.301/PUN/2025 [A] 2 by Chartered Accountant and that the rejection of books of accounts and estimation of profit therefore was uncalled for. 2. The Hon CIT (A) erred in upholding addition of Rs.69,92,549/- made by the Id AO by estimating the net profit at 4% of total business receipts, after rejecting the book results u/s 145(3) of the I. T. Act 1961, which action being not justified, the resultant addition of Rs.69,92,549/- may kindly be deleted. 3. The appellant craves leave to add, alter, amend and/or vary any of the above grounds of appeal at any time before the decision of the appeal.” Submission of ld.AR : 2. Ld.AR for the Assessee field written submission as under : “1 The appellant is a partnership firm engaged in running a liquor shop at Pen. Dist. Raigad, Maharashtra since past several years. The return of income for the year under appeal was filed on 11.10.2022, declaring total income of Rs. 21,59.350/- determined as per audited books of accounts. 2. The Id. A.O has rejected the book results u/s 145(3) and estimated net profit at 4% of turnover. This has resulted in addition of Rs.69,92,549/- The Hon. CIT(A) upheld the rejection of book results u/s 145(3) and confirmed the addition. 3 Rejection of book results u/s 145(3) not justified (Ground no. 01) 3.1 The Id. AO has rejected the audited book results u/s 145(3) of the 1.T Act, 1961 for the under mentioned reasons ITA No.301/PUN/2025 [A] 3 That out of 11 sundry creditor parties to whom notices u/s 133(6) were issued only 5 parties responded and 6 parties did not respond and there were minor variations in closing balances of 2 parties. That the evidences with regards to direct and indirect expenses totally amounting to Rs. 59,65,828/- could not be verified. 3.2 During assessment proceedings, the Id AO requested for the details of purchases and sundry creditors. The appellant vide letter dt. 05/02/2024, submitted the entire purchase register with a statement giving details of sundry creditors like name of the purchase party, address, PAN, VAT No., email id's etc. Appellant also submitted sample copies of purchase bills. The Id AO at the fag end of asst. proceedings issued notices u/s 133(6) to 11 sundry creditor parties out of whom 5 parties responded with necessary details and 6 parties did not respond. The lack of response to notices u/s 133(6) by 6 sundry creditors parties is a cause for the Id AO to reject the book results u/s 145(3). The Id. AO never informed the appellant of such non-response in the final show cause notice dt. 30.01.2024. The 133(6) notices were issued on 06.02.2024 after the issue of SCN on 30.01.2024. (Kindly see page no. 5 of the assessment order) It is humbly submitted that entire sundry creditors are genuine creditors payable on account of purchases by the appellant. The appellant purchased liquor from the said creditors and further sold it to the customers on retail basis. It is humbly pointed out that the entire purchases effected from the said creditors are duly recorded in the audited books of accounts of the appellant. TCS @ 1% is also collected on the said purchases, which fact is duly reflected by form 26AS of the appellant. It is further to be noted that the Id AO has not disputed the sales of the appellant. It is not the case of the Id AO that sales of the ITA No.301/PUN/2025 [A] 4 appellant are inflated due to bogus purchases from the disputed creditors. It is thus the case that without such purchases the subsequent sale of liquor could not have been effected. The appellant submits that non responding by some parties to notice us 133(6) cannot be a ground to reject book results u/s 145(3) Reliance placed on CIT-vs-Jas Jack Elegance Exports, 324 ITR 95 (Delhi) (2010) 3.3 During assessment proceedings, the Id AO requested for details of direct and indirect expenses. The appellant vide letter dt 05/02/2024, submitted the monthly breakup of such expenses alongwith brief explanation about the nature of expenses. However, due to technical limitation on uploading copies of large number of documents on the1.T. portal, the appellant could not upload the bills in support of such expenses. The Id AO has made this a cause for rejecting the book results. The details of disputed expenses are as under. A. DIRECT EXPENSES (i) Transportation and loading unloading expenses Rs.11,01,192.00 B. INDIRECT EXPENSES (i) To Bank interest & charges Rs.70,376.41 (ii) Audit Fees Rs.84,000.00 (iii) Depreciation Rs.597.00 (iv) Electricity Charges Rs.2,35,431.00 (v) Accounting charges Rs.24,000.00 (vi) Insurance Rs.23,716.00 (vii) Interest to partners Rs.21,47,656.50 (viii) Professional fees Rs.30,000.00 (ix) Shop expenses Rs.3,23,360.00 (x) Shop rent Rs.1,80,000.00 (xi) Salary & wages Rs.15,70,000.00 (xii) Travelling expenses Rs.1,75,500.00 Total Rs.59,65,828.00 ITA No.301/PUN/2025 [A] 5 The appellant draws attention to the fact that out of total expenses of Rs.59,65,828/-, a sum of Rs. 21,47,656/- represents interest to partners of the firm. This amount is credited to the partners capital accounts. All other expenses are most reasonable considering the nature and turnover of the appellant. Kindly appreciate the total direct and indirect expenses constitute only 2.61% of turnover. No adverse view with regards to book results is justified, considering the quantum and nature of expenditure involved. 3.4 It is further submitted that rejection of books of accounts u/s 145(3) for the cited reasons je, non verification of 6 creditors and non- verification of evidences vis-à-vis direct and indirect expenses is not justified. The appellant submits that non-acceptance of a particular claim of expenditure could not be a reason to hold that the books of account of the appellant are defective and suffering from deficiency or discrepancies warranting rejection u/s 145(3) of the Act. The appellant submits that as per provisions of section 145(3) of the 1.T Act 1961, the Assessing Officer can reject the books of accounts and make an assessment as provided u/s 144, (a) where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or (b) where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), has not been regularly followed by the assessee. It is submitted that none of the above-mentioned twin conditions prescribed by u/s 145(3) are attracted in the present case. ITA No.301/PUN/2025 [A] 6 3.5 The appellant accordingly prays that the rejection of book results u/s 145(3) is not justified and the said action may kindly not be upheld. Ground no. I may be allowed. Addition of Rs.69,92,549/- by estimating net profit @ 4% of turnover not justified (Ground no. 02) 4.1 The Id AO has rejected the book results u/s 145(3) and estimated net profit at 4% of turnover. The appellant submits that considering the business of the appellant being trading in liquor, 4% net profit estimated by the Id AO on adhock basis is substantially, higher. In reality, the appellant earns between 1-1.5% net profit on turnover. During assessment proceedings, the appellant has submitted comparative net profit ratio chart as under. Particulars A.Y.2022-23 A.Y.2021-22 A.Y.2020-21 Turnover for the year 22,81,7,1274/- 21,95,71,679/- 23,91,55,552/- Net profit for the year 21,59,351/- 31,13,153/- 32,16,023/- N.P. ratio with turnover 0.95% 1.42% 1.34% Examination of the above figures reveal that estimation of net profit at 4% of turnover for AY 2022-23 is highly excessive. The Id AO himself has not brought on record any comparable case with net profit of 4% to adopt this figure. It is also important to note that for the immediate subsequent asst. year ie. A.Y. 2023-24 the Id AO in scrutiny assessment has accepted the book results with net profit percentage of 1.23%. However, in view of expenses incurred by cash vouchers. addition of Rs.6,00,185/- has been made in assessment order passed u/s 143(3) on 20.03.2025. In support of ground no. 2, the appellant reiterates as under ITA No.301/PUN/2025 [A] 7 (6) The net profit declared by the appellant for the year under appeal is as per audited books of accounts and therefore no further estimation is called for (ii) The net profit for the year under appeal is comparable with the net profit declared by the appellant in the earlier asst. years and accepted by the department. The net profit declared by the appellant also compares favorably with the results declared by other similar business entities operating in rural area like the appellant. The rejection of books of accounts would not ipso facto result in addition to the returned income if the GP/NP rate declared for the year is comparable or better than such rate declared for earlier asst. years. The GP/NP rate of the assessee is the best criteria to estimate income on rejection of book results. (iii) All details of expenses, as can be furnished in online faceless process of assessment has been uploaded before the Id AO. No specific defect or deficiency in the details submitted by the appellant is identified by the Id AO. (iv) The principal reason for estimating income are discussed as under. (a) No response by certain purchase parties to notices u/s 133(6) As per the Id AO, out of 11 purchase parties to whom notices us 133(6) were issued, 5 parties responded and 6 parties did not respond. All notices issued at the fag end of asst. proceedings However, appellant has given all details of even the 6 parties who did not respond to notices u/s 133(6). Sample copies of purchase bills have also been uploaded. All payments for purchases are through banking channels. ITA No.301/PUN/2025 [A] 8 TCS is deducted and reflected on IT records like form no. 26AS etc. No summons were issued by the Id AO or no other verification carried out through the verification unit. No evidence with the Id AO that these purchases are not genuine. Sales of the same goods, purchased liquor accepted by the ld AO. It is a cardinal principal that without purchases, there cannot be sales. The appellant was never aware of such non-response to notices u's 133(6) till the receipt of the assessment order. (b) That, evidences for expenses to the tune of Rs. 59,65,828/- have not been verified. Out of total alleged unverified expenses, a sum of Rs. 21,47.656/-(more than 35% of the disputed expenses) represent interest paid to partners of the firm. All details of such interest to partners are reflected by the computation of income as well as reported at clause no. 23 of the tax audit report (from no. 3CB). That, out of the balance expenses Salary and Wages to employees constitute further Rs.15,70,000/- All expenses are most reasonable considering the nature of business and turnover. It is further to be noted that the alleged disputed expenses as per the Id AO are of Rs. 59,65,828/- but the addition made by the Id AO on this count by estimating net profit @ 4% of turnover is of Rs. 69,92,549/-i.e. much more than the total of disputed expenses. ITA No.301/PUN/2025 [A] 9 (v) In the subsequent asst. year i.e. A.Y. 2023-24, the Id AO in order passed u/s 143(3) has accepted net profit % of 1.23% subject to separate addition of Rs. 6,00,185/- on account of adhock disallowance of expenses. 4.2 To support the quantum addition, the Hon. CIT(A) has relied upon the decision of the Hon. Hyderabad Bench in the case of Praveen Kumar Voni-vs-ITO, ITA No. 112/Hyd/2017, Hon. Members, \"SMC-B\" Hyderabad Bench order dt. 21.09.2017 In the said regards, it is pointed out that the facts of the relied upon case are not comparable with that of the appellant. In the above cited case. (i) The assessee had not filed his return of income and the assessment was in response to notice u/s 148. (Para 02/pg no. 1 of ITAT order). (11) The books of accounts were not properly maintained by the assessee for the year under appeal. However, when the same were properly maintained and audited in the subsequent asst. year, net profit of 1.68% of turnover was accepted in scrutiny asst. proceedings. (Para 10/pg no. 4 of ITAT order) In view of the specific defects being not maintaining proper books of accounts and not filing return of income u/s 139, profit was estimated @ 5% of turnover in the above cited decision. In the case of the appellant, the books of accounts are property maintained supported by evidences and duly audited u/s 44AB by a firm of Chartered Accountants. No specific dispute about the method of accounting followed or the correctness and completeness of account has been pointed out. In view of the above, the estimation of net profit @ 4% of turnover is excessive and the consequent addition may kindly be deleted. ITA No.301/PUN/2025 [A] 10 5. In the result, the appellant prays that appeal may kindly be allowed.” Submission of ld.DR : 3. Ld.DR for the Revenue relied on the order of the Assessing Officer(AO) and ld.CIT(A). Findings & Analysis : 4. We have heard both the parties and perused the records. The Assessee is a partnership Firm in the business of retail trading of liquor. During the year, the Assessing Officer observed that assessee has incurred expenditure in cash and no supporting bills were submitted. The total expenditure excluding purchases as appearing in the assessment order were as under : Indirect Expenses Sl.No. Head of Expenses Amount 1. Audit Fees Rs.84,000/- Total : Rs.42,12,587/- 2. Electricity charges Rs.2,35,431/- 3. Interest to partners Rs.21,47,656/- 4. Salary & Wages Rs.15,70,000/- 5. Travelling Expenses Rs.1,75,500/- Direct Expenses 1. Wine Purchase Expenses Rs.6,23,863/- Total : Rs.11,01,192/- 2. Beer Purchase Expenses Rs.1,95,099/- 3. Country Liquor Purchase Expenses Rs.2,82,230/- 4.1 The Assessing Officer rejected the books of accounts and estimated Net Profit at 4% of the total turnover. Aggrieved by the ITA No.301/PUN/2025 [A] 11 Assessment Order, Assessee filed appeal before the ld.CIT(A). Ld.CIT(A) upheld the addition relying on ITAT Hyderabad Bench’s decision. 5. Aggrieved by the order of the ld.CIT(A), Assessee has filed appeal before this Tribunal. 6. We have perused the submission of the Assessee filed by the ld.AR as a paper book. The above expenditures are mainly in cash. Salary and Wages Expenditure of Rs.15,70,000/- are in cash. We have perused the so-called cash vouchers and it is noted that the cash voucher having Sl.No.1, dated 30.04.2021 shows payment of Rs.9,000/- to Mr.Vijay Pradhan. Similarly, Cash Voucher dated 15.04.2021 also have S.No.1 showing payment of Rs.10,000/- to Mr.Kapil Koli. Both these vouchers having scanned and reproduced as under : ITA No.301/PUN/2025 [A] 12 6.1 Similar are the other vouchers wherein, the serial number is misleading and not in the proper serial order. 7. We have perused the copies of the electricity bills filed by assessee in the paper book. It is noted that at S.No.102 of the paper book is the Electricity Bill for Customer No.032510001281 and it is issued in the name of Shri Krishna Bhojanalay. Assessee has claimed expenditure of “Shri Krishna Bhojanalay” which is another entity. The Bill Amount is Rs.3,6,40/-. Another Bill is in the name of A.K. Karmarkar and the type of connection is Residential. Similarly, another bill is in the name of Digamber Karmarkar and type of connection is Residential. The Address is Gopal Nivas, Taluka Pen, District Raigad. Thus, it appears that Assessee has claimed Electricity Expenditure of the residences of the partners. ITA No.301/PUN/2025 [A] 13 The total expenditure under the head “Electricity” is Rs.2,35,431/-. The amount paid for the residents of the partners cannot be said to be expenditure wholly and exclusively for the purpose of the business of the Assessee. Similarly, under the Head “Travelling”, there are certain cash vouchers showing amount paid for Travel from Mumbai to Pen. From these vouchers, one cannot understand who has travelled from Mumbai to Pen, what was the reason for the travel! The amount is Rs.4,000/- dated 03.05.2021. Similarly, there are expenditures showing travel between Mumbai and Pen, but nowhere the name of the person who travelled is mentioned. It is also observed that Assessee has merely filed Self-made Vouchers to claim transportation expenditure of Rs.11,01,192/-. We have perused these Self-made Vouchers and observed that there is no proper serial number for the vouchers. The Assessee has not filed copy of the cash book to co-relate these cash expenditures. On perusal of these Vouchers and the Electricity Bills, we are convinced that accounts are not maintained properly and accounts cannot be relied. 7.1 Therefore, we upheld the rejection of books of accounts by the Assessing Officer. ITA No.301/PUN/2025 [A] 14 8. As far as interest payment and remuneration to partners is concerned, the Assessee has not filed copy of partnership deed to demonstrate that partnership deed mentions about interest and remuneration to partners. It is also observed that Assessee has not explained at what rate the interest has been paid to partners. 9. It is noted that the Net Profit for A.Y.2022-23 is 0.95%. The Assessee has submitted that for A.Y.2023-24, the Net Profit was 1.23% which has been accepted by the Assessing Officer u/s.143(3) after making disallowance of Rs.6,00,185/-. The Net Profit for A.Y.2021-22 was 1.42%. Thus, the Net Profit shown for A.Y.2022- 23 at 0.95% is comparatively less. 10. We have already stated above that the Indirect Expenditure excluding interest to partners is Rs.19,80,000/- and Direct Expenses in cash qua Transportation of Wines/Beer is Rs.11,01,192/-. We have already pointed out the defects, therefore, we are convinced that Assessee has failed to prove that the expenditure was wholly and exclusively for the purpose of business of the Assessee. In these facts and circumstances of the case, considering the Net Profit of subsequent years and earlier year, we direct Assessing Officer to ITA No.301/PUN/2025 [A] 15 disallow a lump sum of Rs.10,00,000/- out of the total expenditure of Rs.30,81,192/-. 10.1 Accordingly, Ground No.1 raised by the Assessee is dismissed and Ground No.2 is partly allowed. 11. Ground No.3 is general in nature, no ground was added or altered, hence, does not need any adjudication. Accordingly, Ground No.3 is dismissed. 12. In the result, appeal of the assessee is partly allowed. Order pronounced in the open Court on 29 May, 2025. Sd/- Sd/- (VINAY BHAMORE) (DIPAK P.RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 29 May, 2025/ SGR आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “बी” बᱶच, पुणे / DR, ITAT, “B” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune. "